Indonesia Wouldn't Block OPEC Cuts; Says Prices May Slide Lower

Is OPEC Fueling the Global Oil Glut?
  • Prices may fall if supply added `irrationally': OPEC governor
  • Talking with Iran about oil supplies for domestic refineries

Indonesia wouldn’t oppose any call by OPEC to cut crude production while saying oil prices may trend lower because of weak global demand and high supply.

The Southeast Asian producer officially reactivated its OPEC’s membership on Dec. 4 after a seven-year suspension and is the only net-importing country in the producer group. Its return coincides with a collapse in crude prices that’s discouraging energy investments and as the country’s dependence on overseas oil grows.

Indonesia wouldn’t try to block an OPEC decision to throttle back output “as long as we wouldn’t get cut,” the country’s OPEC Governor Widhyawan Prawiraatmadja said in an interview in Jakarta on Tuesday. “We are new, we like to listen, to observe,” he said, adding he didn’t know what price level would trigger an extraordinary OPEC meet.

The country is talking to fellow OPEC member Iran about long-term crude supplies to feed its growing domestic oil refining industry, Prawiraatmadja said, declining to give details. Indonesia aims to increase its processing capacity by about 40 percent by 2025 to 1.73 million barrels a day. That will require investment of $23.6 billion, including construction of two new refineries, with Indonesia looking to OPEC countries for investments and supplies.

Irrational Supply

Indonesia needed to resume its OPEC membership to help ensure its energy security, Prawiraatmadja said. The country is not expecting to propose a candidate for OPEC secretary-general, but will do so if it has a good candidate and is asked to, he added.

Crude prices have extended their slide below $40 a barrel after OPEC reiterated its stance to maintain production at current levels and refrained from setting an official output target at its Dec. 4 meeting.

Prices may continue to fall if both OPEC and non-OPEC producers “irrationally” add volume to the market and if demand growth slows because of a sluggish global economic recovery, he said. It will take time for high-cost producers to cut output, he said.

Indonesia’s government will have to get used to lower revenues from oil and gas, Prawiraatmadja said.

“Stopping production is risky, but not continuing future projects is probably wise,” he said. “Life was simple when oil prices were above $100.”

Indonesia produces around 800,000 barrels per day of crude, and is expected to import 693,000 barrels per day of fuel products this year, according to energy ministry data.

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